1. 1 Chapter 4 Product, Process, and Service Design

2. 2 Product/Service Design Product/service design directly affects: l Product/service quality l Production/delivery cost l Customer satisfaction

3. 3 Product/Service Design and Development l Sources of Product Innovation l Developing New Products/Services l Getting Them to Market Faster l Improving Current Products/Services l Designing for Ease of Production l Designing for Quality l Designing and Developing New Services

4. 4 Sources of Product/Service Innovation l Customers l Managers l Marketing l Operations l Engineering l Research and Development (R&D) l Basic research l Applied research

5. 5 Steps in Developing New Products 1. Technical and economic feasibility studies 2. Prototype design 3. Performance testing of prototype 4. Market sensing/evaluation and economic evaluation of the prototype 5. Design of production model 6. Market/performance/process testing and economic evaluation of production model 7. Continuous modification of production model

6. 6 Steps in Developing New Products 1. Technical and Economic Feasibility Studies l Determine the advisability of establishing a project for developing the product l If initial feasibility studies are favorable, engineers prepare an initial prototype design

7. 7 Steps in Developing New Products 2. Prototype Design l This design should exhibit the basic form, fit, and function of the final product l It will not necessarily be identical to the production model

8. 8 Steps in Developing New Products 3. Performance Testing of Prototype l Performance testing and redesign of the prototype continues until this design-test-redesign process produces a satisfactorily performing prototype

9. 9 Steps in Developing New Products 4. Market Sensing/Evaluation and Economic Evaluation of the Prototype l Accomplished by demonstrations to potential customers, market test, or market surveys l If the response to the prototype is favorable, economic evaluation of the prototype is performed to estimate production volume, costs, and profits l If the economic evaluation is favorable, the project enters the production design phase.

10. 10 Steps in Developing New Products 5. Design of Production Model l The initial design of the production model will not be the final design; the model will evolve

11. 11 Steps in Developing New Products 6. Market/Performance/Process Testing and Economic Evaluation of Production Model l The production model should exhibit: l low cost l reliable quality l superior performance l the ability to be produced in the desired quantities on the intended equipment

12. 12 Steps in Developing New Products 7. Continuous Modification of Production Model l Production designs are continuously modified to: l Adapt to changing market conditions l Adapt to changing production technology l Allow for manufacturing improvements

13. 13 Managing Product Development Projects l About 5% of all new-product ideas survive to production, and only about 10% of these are successful. l It is best to cancel unpromising new-product/service development projects early! l Employees often become emotionally caught up in these projects and are overly optimistic l An impartial management review board is needed for periodic reviews of the progress of these projects.

14. 14 Getting New Products to Market Faster l Speed creates competitive advantages l Speed saves money l Tools to improve speed: l Autonomous design and development teams l Computer-aided design/computer-aided manufacturing (CAD/CAM) l Simultaneous (concurrent) engineering

15. 15 Tools to Improve Speed to Market l Autonomous Design and Development Teams l Teams are given decision-making responsibility and more freedom to design and introduce new products/services l Time-to-market has been slashed dramatically l Enormous sums of money have been saved l Teams do not have to deal with the bureaucratic red tape ordinarily required to obtain approvals

16. 16 Tools to Improve Speed to Market l Computer-Aided Design/Computer-Aided Manufacturing (CAD/CAM) l Engineers, using CAD/CAM, can generate many views of parts, rotate images, magnify views, and check for interference between parts l Part designs can be stored in a data base for use on other products l When it is time for manufacturing, the product design is retrieved, translated into a language that production machinery understands, and then the production system can be automatically set up.

17. 17 Tools to Improve Speed to Market l Simultaneous (Concurrent)Engineering Economic and Technical Feasibility Studies Product/ Service Ideas Production Process Design Product/Service Design Produce and Market New Product/Service Continuous Interaction

18. 18 Improving the Design of Existing Products/Services l Focus is improving performance, quality, and cost l Objective is maintaining or improving market share of maturing products/services l Little changes can be significant l Small, steady (continuous) improvements can add up to huge long-term improvements l Value analysis is practiced, meaning design features are examined in terms of their cost/benefit (value).

19. 19 Designing for Ease of Production l Ease of Production (Manufacturability) l Specifications - Precise information about the characteristics of the product l Tolerances - Minimum & maximum limits on a dimension that allows the item to function as designed l Standardization - Reduce variety among a group of products or parts l Simplification - Reduce or eliminate the complexity of a part or product

20. 20 Designing for Quality l Crucial element of product design is its impact on quality l Quality is determined by the customer’s perception of the degree of excellence of the product/service’s characteristics l Chapter 7 covers the principles of designing products/services for quality

21. 21 Designing and Developing New Services Three general dimensions of service design are: l Degree of Standardization of the Service l Custom-fashioned for particular customers or basically the same for all customers? l Degree of Customer Contact in Delivering the Service l High level of contact (dress boutique) or low level (fast-food restaurant)? l Mix of Physical Goods and Intangible Services l Mix dominated by physical goods (tailor’s shop) or by intangible services (university)?

22. 22 Designing and Developing New Services l Differences Between New Service and New Product Development l Unless services are dominated by physical goods, their development usually does not require engineering, testing, and prototype building. l Because many service businesses involve intangible services, market sensing tends to be more by surveys rather than by market tests and demonstrations.

23. 23 Process Planning and Design

24. 24 Inputs: Product/Service Information Product/Service Information Production System Information Production System Information Operations Strategy Operations Strategy Process Planning & Design: Process-Type Selection Process-Type Selection Vertical Integration Studies Vertical Integration Studies Process/Product Studies Process/Product Studies Equipment Studies Equipment Studies Production Procedures Studies Production Procedures Studies Facilities Studies Facilities Studies Outputs: Process Technology Process Technology Facilities Facilities Personnel Estimates Personnel Estimates Process Planning and Design System

25. 25 Major Factors Affecting Process Designs l Nature of product/service demand l Degree of vertical integration l Production flexibility l Degree of automation l Product/Service quality

26. 26 Nature of Product/Service Demand l Production processes must have adequate capacity to produce the volume of the products/services that customers need. l Provisions must be made for expanding or contracting capacity to keep pace with demand patterns. l Some types of processes are more easily expanded and contracted than others. l Product/service price affects demand, so pricing decisions and the choice of processes must be synchronized.

27. 27 Degree of Vertical Integration l Vertical integration is the amount of the production and distribution chain that is brought under the ownership of a company. l This determines how many production processes need to be planned and designed. l Decision of integration is based on cost, availability of capital, quality, technological capability, and more. l Strategic outsourcing (lower degree of integration) is the outsourcing of processes in order to react quicker to changes in customer needs, competitor actions, and technology.

28. 28 Production Flexibility l Product flexibility -- ability of the production (or delivery) system to quickly change from producing (delivering) one product (or service) to another. l Volume flexibility -- ability to quickly increase or reduce the volume of product( or service) produced (or delivered).

29. 29 Degree of Automation l Advantages of automation l Improves product quality l Improves product flexibility l Reduces labor and related costs l Disadvantages of automation l Equipment can be very expensive l Integration into existing operations can be difficult

30. 30 Product/Service Quality l Old viewpoint – high-quality products must be made in small quantities by expert craftsmen l New viewpoint – high-quality products can be mass- produced using automated machinery l Automated machinery can produce products of incredible uniformity l The choice of design of production processes is affected by the need for superior quality.

31. 31 Types of Process Designs l Product-Focused l Process-Focused l Group Technology/Cellular Manufacturing

32. 32 Product-FocusedProduct-Focused l Processes (conversions) are arranged based on the sequence of operations required to produce a product or provide a service l Also called “Production Line” or “Assembly Line” l Two general forms l Discrete unit – automobiles, dishwashers l Process (Continuous) – petrochemicals, paper

33. 33 PurchasedComponents,Subassemblies Product-FocusedProduct-Focused 22 31 4 1 7 6 5 ComponentsSubassem. Assemblies Product/Material Flow Production Operation Assemblies Raw Material Components Compon. Subassem. Fin. Goods

34. 34 Product-FocusedProduct-Focused l Advantages l Lower labor-skill requirements l Reduced worker training l Reduced supervision l Ease of planning and controlling production l Disadvantages l Higher initial investment level l Relatively low product flexibility

35. 35 Process-FocusedProcess-Focused l Processes (conversions) are arranged based on the type of process, i.e., similar processes are grouped together l Products/services (jobs) move from department (process group) to department based on that particular job’s processing requirements l Also called “Job Shop” or “Intermittent Production” l Examples l Auto body repair l Custom woodworking shop

36. 36 Process-FocusedProcess-Focused CuttingAssemblySandingFinishingPlaning Drilling Shaping Turning 11 55 77 33 22 11 66 33 66 44 22 Job A Job B 4455 Custom Woodworking Shop

37. 37 Process-FocusedProcess-Focused l Advantages l High product flexibility l Lower initial investment level l Disadvantages l Higher labor-skill requirements l More worker training l More supervision l More complex production planning and controlling

38. 38 Group Technology/Cellular Manufacturing l Group Technology l Each part produced receives a multi-digit code that describes the physical characteristics of the part. l Parts with similar characteristics are grouped into part families l Parts in a part family are typically made on the same machines with similar tooling

39. 39 Group Technology/Cellular Manufacturing l Cellular Manufacturing l Some part families (those requiring significant batch sizes) can be assigned to manufacturing cells. l The organization of the shop floor into cells is referred to as cellular manufacturing. l Flow of parts within cells tend to be more like product-focused systems

40. 40 Group Technology/Cellular Manufacturing l Advantages (relative to a job shop) l Process changeovers simplified l Variability of tasks reduced (less training needed) l More direct routes through the system l Quality control is improved l Production planning and control simpler l Automation simpler

41. 41 Group Technology/Cellular Manufacturing l Disadvantages l Duplication of equipment l Under-utilization of facilities l Processing of items that do not fit into a family may be inefficient

42. 42 Group Technology/Cellular Manufacturing l Candidates for GT/CM are job shops having: l A degree of parts standardization l Moderate batch sizes

43. 43 Product/Process Design & Inventory Policy l Standard Products and Produce to Stock l Sales forecasts drive production schedule l Maintain pre-determined finished-goods levels l MRP forecast drives material ordering l Custom Products and Produce to Order l Orders set production schedule and drive material deliveries l Design time (preproduction planning) may be required before production can be scheduled

44. 44 Process Design in Services l Some of the factors important in process design for products are also important in services: l Nature (level and pattern) of customer demand l Degree of vertical integration l Production flexibility l Degree of automation l Service quality

45. 45 Deciding Among Processing Alternatives l Batch Size and Product/Service Variety l Capital Requirements l Economic Analysis l Cost Functions of Alternative Processes l Break-Even Analysis l Financial Analysis

46. 46 Process Design Depends on Product Diversity and Batch Size Small Batch Size Large Few Number of Product Designs Many ProductFocused,DedicatedSystems ProductFocused,BatchSystem Process-Focused, Job Shop Job Shop CellularManufacturing

47. 47 Capital Requirements l The amount of capital required tends to differ for each type of production process l Generally, the capital required is greatest for product- focused, dedicated systems l Generally, the capital required is lowest for process- focused, job shops l The amount of capital available and the cost of capital are important considerations

48. 48 Economic Analysis l Cost Functions of Processing Alternatives l Fixed Costs l Annual cost when production volume is zero l Initial cost of buildings, equipment, and other fixed assets l Variable Costs l Costs that vary with production volumes l Labor, material, and variable overhead

49. 49 Cost Functions of Processing Alternatives Annual Cost of Production ($000) UnitsProduced Per Year 100,000 250,000 CellularManufacturingPreferred Automated Assembly Line Preferred JobShopPreferred 500 1,000 2,000 1,500 Job Shop Cellular Manuf. Autom. Assembly Line

50. 50 Cost Functions of Processing Alternatives l Example Three production processes (A, B, and C) have the following cost structure: Fixed Cost Variable Cost Process Per Year Per Year Fixed Cost Variable Cost Process Per Year Per Year A$120,000 $3.00 A$120,000 $3.00 B 90,0004.00 B 90,0004.00 C 80,0004.50 C 80,0004.50 What is the most economical process for a volume of 8,000 units per year?

51. 51 Cost Functions of Processing Alternatives l Example TC = FC + v(Q) TC = FC + v(Q) A: TC = 120,000 + 3.00(8,000) = $144,000 per year B: TC = 90,000 + 4.00(8,000) = $122,000 per year C: TC = 80,000 + 4.50(8,000) = $116,000 per year The most economical process at 8,000 units is Process C, with the lowest annual cost.

52. 52 Economic Analysis l Break-Even Analysis l Widely used to analyze and compare decision alternatives l Can be displayed either algebraically or graphically l Disadvantages: l Cannot incorporate uncertainty l Costs assumed over entire range of values l Does not take into account time value of money

53. 53 Break-Even Analysis l Example Break-Even Points of Processes A, B, and C, assuming a $6.95 selling price per unit Break-Even Points of Processes A, B, and C, assuming a $6.95 selling price per unit Q = FC / (p-v) Q = FC / (p-v) A: Q = 120,000 / (6.95 - 3.00) = 30,380 units B: Q = 90,000 / (6.95 - 4.00) = 30,509 units C: Q = 80,000 / (6.95 - 4.50) = 32,654 units Process A has the lowest break-even point.

54. 54 Economic Analysis l Financial Analysis l A great amount of money is invested in production processes and these assets are expected to last a long time l The time value of money is an important consideration l Payback period l net present value l internal rate of return l Profitability index